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E.ON reports record loss on power plant writedowns

Germany's biggest energy company has posted its second-consecutive record loss in as many years after writing down the value of its coal and gas-fired power plants. It plans to split in two separate entities this year.

Unveiling a record net loss of 7 billion euros ($7.7-billion) on Wednesday, the German energy giant warned that its restructuring amid Germany's shift towards a wider use of renewable power would be "tougher and longer than anticipated."

E.ON reported writedowns of 8.8 billion euros for 2015, triggered by declining wholesale power prices which slumped to their lowest since at least 2002, and were 75 percent below a 2008 peak.

"The general economic environment and the situation in our industry have deteriorated significantly," Chief Executive Officer Johannes Teyssen told reporters in Essen, adding that E.ON expected the transformation in the industry to "continue unabated."

The CEO also said that a 10-percent decline in operating profit to 7.6 billion euros developed "in line with expectations" and that the company had succeeded in reducing its net debt "significantly to 27.7 billion euros."

The company proposed a dividend of 50 euro cents a share for 2015, unchanged from a year earlier and in line with guidance.

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E.ON's annual net loss was the third in the company's history after being unprofitable in 2011 and 2014. For 2016, E.ON forecast underlying net income of between 1.2 and 1.6 billion euros.

All of Germany's four biggest utilities wrote down the value of their power generators in 2015 as wholesale electricity costs slumped. RWE, the second biggest German power company, reported plant writedowns of 2.1 billion euros on Tuesday, while Sweden's Vattenfall wrote down 15.2 billion kronor (1.6 billion euros, $1.79 billion) on its business in Germany.

The utilities have complained that the country's transition from conventional carbon fuels to greener, cleaner sources of energy is squeezing their margins. In addition, a government decision to phase out nuclear energy by 2022 as well as lavish state subsidies for renewable energy have pushed them deeply into the red.

Spinning off loss-makers

As a result, E.ON and its rival RWE have both decided to split their conventional power operations from their renewable energy divisions, while Vattenfall has moved to sell its lignite operations in Germany altogether.

In E.ON's case, the conventional business is being spun off into a unit called Uniper. CEO Teyssen insisted this was "the right response to the transformation," warning, however, that the move would weigh on the company's outlook for 2016.

"The difficult market environment will cause, in particular, free cash flow to be below earlier assumptions, future investments and dividends will have to reflect this," he said.

uhe/cjc (Reuters, dpa, AFP)

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